19 January 2012

NCC Group

Growing international revenues drive profits up 33%

Highlights   

·      Group revenue up 28% to £42.4m (£33.0m in 2010)

o  Organic revenue up 20%

o  International revenue now contributes 31% (21% in 2010)

·      Group adjusted operating profits from continuing operations* increased by 33% to £10.2m (£7.7m in 2010)

o  Group Escrow operating profits up by 13% to £7.6m

o  Assurance operating profits up by 87% to £4.6m

·      Group adjusted pre-tax profits from continuing operations** up by 32% to £9.8m (£7.4m in 2010)

·      Adjusted diluted earnings per share from continuing operations*** up by 33% to 20.2p (15.2p in 2010)

·      Interim dividend up by 23% to 5.1p (4.15p in 2010)

·      Ratio of cash inflow from operating activities before interest and tax to operating profit increased to 144% (141% in 2010)

·      Orders and renewals up 7% totalling £43.7m (£41.0m in November 2010) for the current financial year

·      Price increases for UK Escrow implemented in November

* Operating profits from continuing operations before amortisation of intangible assets and exceptional items and acquisition costs.

** Profit before tax from continuing operations before amortisation of intangible assets, exceptional items and acquisition costs and unwinding of the discount on acquisitions.

*** See reconciliation below

Rob Cotton, Group Chief Executive, commented:

"A clear focus on our international growth strategy, which includes exploiting a number of growing market opportunities, has enabled us to deliver a very strong set of results with profits up 33%.  We have increased the interim dividend by 23%, to reflect both our confidence for the future as well as our recent performance.

"The cyber arms race continues to speed up, and with the technology revolution outpacing the ability of IT departments to cope with the plethora of security issues, we are well placed to maintain our growth momentum."

Enquiries:

Interim management report

Overview

NCC Group increased revenue in the first six months to 30 November 2011 by 28% to £42.4m (£33.0m in 2010) with good growth coming in both the Escrow and Assurance divisions, despite the uncertainty in the global economy.  Organic Group revenue grew by 20%.

Group adjusted operating profit increased by 33% to £10.2m (£7.7m in 2010).  Escrow adjusted operating profits grew by 13% to £7.6m (£6.7m in 2010) and Assurance by 87% to £4.6m (£2.4m in 2010.)

Group adjusted diluted earnings per share improved 33% to 20.2p (15.2p in 2010). The Board has continued its progressive dividend policy, increasing the interim dividend by 23% to 5.1p (4.15p in 2010).

The Group continues to be highly cash generative with the ratio of operating cash flow before interest and tax being 144% of operating profits (141% in 2010) and net debt at the end of the period was £23.4m.

Financial review

Revenue

Group revenues increased by 28% to £42.4m (£33.0m in 2010).  Organic revenue growth was 20% excluding revenue from the two USA businesses, iSEC acquired in October 2010, and Escrow Associates acquired in March 2011, which contributed £3.7m and £0.8m of revenue respectively.

Group Escrow revenue accounted for 32% of NCC Group's total revenue (36% in 2010) with Assurance representing the other 68% (64% in 2010).  The change is due to the full effects of Assurance acquisitions as well as the good levels of organic growth.

The table below summarises the revenue by Division, including their key business areas.

The table below provides an analysis of the Group's revenue by geographical market where the customer is based and highlights the significant increase in the scale of the US operations. 

International revenue now makes up 31% (21% in 2010) of total Group revenue: 

Profitability

Group adjusted operating profit, which is operating profit excluding amortisation of intangible assets and exceptional items but not share based payments, increased by 33% to £10.2m (£7.7m in 2010).

The Group adjusted operating profit margin increased to 24.2% (23.4% in 2010) due to operational efficiencies and the benefit of the acquisitions becoming integrated into the Group.  Escrow margins increased to 56.1% (55.9% in 2010) whilst in Assurance they increased by 35% to 15.7% (11.6% in 2010).

The Group incurred exceptional costs of £68,000 (£748,000 in 2010) relating to the acquisition of Axzona, the web monitoring technology company, in August 2011. 

Group adjusted pre-tax profits increased by 32% to £9.8m (£7.4m in 2010).   Adjusted pre-tax profits exclude amortisation of intangible assets, exceptional items and unwinding of the discount on acquisitions.  The Group's reported pre-tax profit was up 46% to £7.8m (£5.3m in 2010). 

Taxation 

The tax charge for the six months ended 30 November 2011 is 29% (33% in 2010) of profit before tax and is based upon the expected tax charge for the year.  The reduced rate reflects the reduction in the UK corporate tax rates and the lower amounts of exceptional acquisition fees which are not allowable for tax.

Earnings per share

The adjusted diluted earnings per share from continuing operations increased by 33% to 20.2p (15.2p in 2010).  Reported basic earnings per share from continuing operations were 16.1p (10.6p in 2010).

The table below reconciles the adjustments made to obtain the adjusted diluted earnings per share from continuing operations. 

Dividends

In line with a continuing progressive dividend policy, the Board is paying an interim dividend of 5.1p (4.15p in 2010), an increase of 23%.   This will be paid on 24 February 2012 to shareholders on the register at the close of business on 27 January 2012, with an ex-dividend date of 25 January 2012.

This represents cover of 3.2 times (2.6 times in 2010) based on basic earnings from continuing operations and cover of 4.0 times on an adjusted basic earnings on continuing operations basis (3.8 times in 2010).

Cash & funding

The Group remains committed to strong balance sheet management and borrowing only for affordable value enhancing acquisitions.  Operating cash flow before interest and tax, as a ratio to operating profits of £8.3m, remained very strong at 144% (141% in 2010).

After acquisitionconsideration payments made of £3.8m, the Group had net debt of £23.4m (£20.3m in 2010) at the period end against facilities of £37.0m.  A deferred consideration payment of £3.8m for iSEC is due to be paid in the second half of the financial year.

In October 2011 the Group updated its revolving credit facility agreement maintaining the full £35m facility until July 2013. The revised agreement terms remain the same as before, with interest on the facility being charged at 2% over LIBOR and on the £2.0m overdraft facility at 2% over bank base rate. 

Capital expenditure increased to £3.6m (£1.9m in 2010).  This is mainly due to the continuing development and roll-out of the Group-wide IT system and the refurbishment of new and existing offices.  New offices have been taken on in Cheltenham, Greater London, Manchester and San Francisco.  Both the refurbishment schedule and IT system implementation will be completed by May and September 2012 respectively.

Operational review

Group Escrow

The Escrow businesses remain the cornerstone of the Group's profitability and cash generation. The performance has been very encouraging, particularly in the USA where Escrow Associates was quickly integrated, increasing the Group's capability in the territory. 

All of the Escrow businesses offer substantial margins, a high degree of recurring revenue due to the contract renewal rates as well as very strong cash conversion characteristics.  In the first half of the financial year for all Escrow businesses, the key performance measures of profitability, renewals and verification testing have improved. 

The Division increased revenue by 13% (10% in 2010) to £13.5m (£11.9m in 2010).  Group Escrow operating profitability grew by 13% (12% in 2010) to £7.6m (£6.7m in 2010) with the UK contributing 83% (86% in 2010). 

Global verification revenues continued the trend seen in the second half of the last financial year and grew by 5% to £2.5m (£2.3m in 2010).  Group recurring revenues through the renewals process will grow to £17.2m this year (£15.2m in 2010).

Escrow UK.  The first half of the financial year saw a very consistent and robust performance from the UK team as the account management function was rebuilt and reinvigorated, which resulted in good revenue growth. 

The new management team has redeveloped the recruitment, training and sales processes and has created a firm platform for growth, in what are likely to become even more cost sensitive times.  Staff retention is greatly improved and the headcount has been progressively increased, reversing the trend seen in the last financial year.  Great care is being taken to ensure that the foundations and structures are secure enough to deliver sustained, controlled growth.

Overall Escrow revenue in the UK grew 6% to £9.8m (£9.2m in 2010) with solid contract and verifications performances.  Tight cost control ensured operating profit increased by 11% (10% in 2010) to £6.3m (£5.7m in 2010). 

In November 2011 Escrow UK prices increased by an average of 3.6%.  The price increase was due to the substantial increase in the limit of liability being offered to customers, which saw the cover provided for negligence in the agreement increased by 67% to £2.5m.

The underlying termination rate remains at on or about 12%.  The rate has been static for the last four years, with no discernible change in the reasons for termination. 

Escrow Europe & Escrow USA.  Escrow Europe increased revenue by 9% (11% in 2010) to £1.7m (£1.5m in 2010) as it continued to deliver good growth predominately in the Netherlands. 

Escrow USA increased revenue by 74% to £2.0m, including a first contribution from Escrow Associates.  The addition of Escrow Associates has provided the Group with an important expansion in the reach and scale of its US escrow business.

The west coast based operation grew organically by over 4% despite the business being relocated from San Jose to San Francisco in July and the resulting loss of account managers.   The majority of the team has been replaced.  San Francisco is a much better recruitment area for the type of individual required.  The standardisation of pricing has begun in earnest.

Assurance Division

Assurance Division revenues increased by 37% to £28.9m (£21.1m in 2010). Excluding the acquisition of iSEC, the Division's revenue increased 28% to £25.6m (6% in 2010), whilst adjusted operating profits increased 87% to £4.6m (£2.4m in 2010) or by 58% excluding the acquisitions.

The Division has benefited from its unique ability to offer a complete end to end solution covering all aspects of information security on a global basis.  The Group has a peerless reputation through iSEC and NGS for web, application and vulnerability assessments and is a leading provider of managed security services and forensics. 

Within all parts of Assurance staff retention and recruitment is the most important issue.  The Group has been striving to ensure that the balance for testers between paid-for utilisation, the quality of deliverable work and research is correctly managed.  This is a difficult balance to achieve as it has a number of implications, not least the loss of key staff if the balance is wrong. 

The Group took a conscious decision, especially in NGS to lower utilisation, increase research and product development at the expense of margin, but also to reject some work not suitable to be delivered by its skilled and qualified team.  The results were excellent with a very strong performance being seen from the business unit as the benefits substantially outweighed the costs as staff turnover fell to below 2%. 

This is significantly better than the industry planning assumption of 10% separation that is regarded as normal in skilled IT environments.   Further, the Group has in both the UK and US attracted a lot of industry plaudits and recommendations for its research work, much of which is now paid for by clients.

In the USA, iSEC has successfully delivered its first year of earn out.  A full payment is anticipated as the organisation's reputation and standing continue to grow.  The joint offerings with the UK have provided clients with a truly global response team as well as a technical know-how that covers most of the major blue chip application developers, banks and retailers. 

The US team has successfully delivered UK client work and vice versa.  The benefits are both to the client in terms of reduced costs and to the Group in having access to a wider skills network in order to use exactly the right member of the team on assignments.

Site Confidence, the web performance and load testing business, continued to perform strongly.  It achieved a recurring revenue rate above 90% (90% in 2010) as businesses continue to recognise the importance of their website to their business prospects.

SDLC continues to flourish within the Group and has seen a significant improvement in its operating margins as well as facilitating a number of cross selling opportunities which reduce client's risk over functionality, security and compliance, which make their lower margin acceptable. 

The opportunity to offer all of the Group's services to its top 100 clients is fast becoming a major area of opportunity.  The Group is seeing a join-up from SDLC through to the most senior Operational Response services, covering all aspects of information security and testing.

Assurance & Security Markets.  The market place for security is not expected to be impacted by the global downturn.  More needs to be spent just to ensure that organisations and developers alike stay up-to-date.  It was reported by FireEye Inc. that $20 billion is spent on enterprise IT security annually globally.  The Group does not believe that this figure will be enough to prevent the increase in attacks, fuelled further by the proliferation of threats from nation state hacking.

The new breed of hackers are developing novel and sophisticated techniques that are evading existing defences, aided by the dynamic nature of the IT revolution.

In completing an attack, the hacker has to go through three phases: getting in, locating and obtaining the target information, and getting out.  Experience shows that the most common attacks are via existing remote access applications.  Most commonly targeted is payment card data and the most common method is to harvest that data using malware. 

The most damaging attacks are the least common due to their sophistication, but are targeted at the most valuable information - trade secrets and IP along with sensitive company and customer information.  The loss to the UK economy was over £27 billion last year alone according to research conducted by Detica for the Government's UK Cyber Security Strategy Report.

The underlying principal of security needs to start at the application development stage.  No code written can be error free, but the speed of development and the cost constraints of project delivery often mean that the implication of any errors is not properly considered.  Errors in coding can result in vulnerabilities which need to be addressed before they are detected by hackers.  Independent code reviews throughout every stage of the development process and on to deployment are essential.

There has been a proliferation of application development in the mobile markets to meet customer demand.  But it is the exponential growth of the tablet and the use of mobile devices that is the major concern to IT security.  The innate flexibility and freedom of this technology brings  real risks.  The lack of conventional control, along with cost cutting measures such as "bring your own tech to work" schemes, open enterprises up to even more threat.  As the world moves towards mobile wallet payment systems the vulnerabilities to the individual and enterprises further increase.

The reality of being hacked is both more likely than ever before and more commonly reported.  However, organisations are still unwilling to publicly acknowledge it as they perceive they will suffer reputational damage.

The US Government is taking the threat of cyber-attack seriously, with disclosure being mandated both through legislation and through the SEC (Securities Exchange Commission.)  In the UK, where, by the Government's own admission, hacking costs the UK economy £21 billion a year, as well as £2.2 billion to defend the UK Government from direct attacks, no similar mandate is being suggested. 

Being attacked is now such a commonplace event that full disclosure should be the norm rather than the exception.  More importantly, by full and transparent disclosure the UK would learn where and how the vulnerabilities are arising.  This would give corporate enterprises, as well as government bodies', an increased ability to defend themselves.  This would also reduce the stigma of being hacked.   

Defending ourselves from cyber-attack is an arms race and building security walls higher and higher will not work. A change in the perception and understanding of what is actually happening is essential.

To help limit the threat to organisations, the Assurance Division is committed to ensuring that its customers have access to a total solution.  This starts at the software development stage, with the developer and vendor communities as the Group helps pinpoint and eradicate security flaws in applications using penetration testing, reverse engineering and code reviews. 

For enterprises, ranging from the largest financial institutions to the SME, the Group endeavours to provide assurance over security and vulnerabilities for all information held, software and applications used, as well as the web environments, be that the external customer facing or for internal applications. 

Additionally, advanced planning to manage the impact of a potential hack as well as providing a rapid response forensic team are all part of the Group's services.

Current trading & outlook

The Group's approach remains to develop the business by a combination of the acquisition of earnings enhancing, high quality businesses, with strong organic growth, focused away from areas of discretionary expenditure.  The Group is always in discussions with a number of businesses that fit strategically.

The Group is benefiting from its early substantial investments in time and resources, both financial and managerial, to build the range of capabilities to address the cyber security market place and is committed to investing further in this growth area.

As an international market leader, the Group is very well placed to benefit from the increase in awareness about cyber-crime and cyber-terrorism.  The objective remains to develop further the Group's knowledge, experience, international reach and capability to ensure that NCC Group is the international organisation of choice in the information security space.

The Escrow businesses expect annual renewals to be £17.2m (£15.2m in November 2010) in this financial year, based on termination rates at 12%.  Escrow Verification Testing worldwide order book has been rebased and has a fully committed forward order book of £1.9m (£2.4m in November 2010). 

The Assurance Division's testing order books have increased and now stand at £19.4m (£18.8m in November 2010).  The renewal rate for Site Confidence web performance testing increased to over 90% (90% at November 2010), giving renewal revenue of £5.2m (£4.6m in November 2010) for this financial year.

In total the Group's orders and renewals for the current financial year have increased by 7% to £43.7m (£41.0m in November 2010).

The Group's revenue has always been biased towards the second half of the financial year and this is expected to continue this year.  The Board remains confident of a very good second half to the financial year in line with current market expectations.

Principal risks & uncertainties

The Group faces operational risks and uncertainties which the Directors take reasonable steps to mitigate, however the directors recognise that such risks can never be eliminated completely.

The principal operational risks and uncertainties the Group faces include those in relation to the recruitment of additional staff to meet the Group's ambitious growth plans, the occurrence of unforeseen difficulties in the integration of future acquisitions, the implementation of the Group IT system and the dependence on key executives and senior managers.

Risk and uncertainties outside the Group's control include those relating to the general economy and alterations to the legislative and taxation framework in which the Group operates.

Rob Cotton                                          

Chief Executive

19 January 2012

ERNST & YOUNG LLP

100 Barbirolli Square

Manchester, M2 3EY

United Kingdom

INDEPENDENT REVIEW REPORT TO NCC Group plc 

Introduction 

We have been engaged by the Company to review the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 November 2011 which comprises the Group Condensed Income Statement, the Group Condensed Statement of Comprehensive Income, the Group Condensed Balance Sheet, the Group Condensed Cash Flow Statement, the Group Condensed Statement of Changes of Equity and the related explanatory notes 1 to 12. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 November 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Ernst & Young LLP

Manchester

19 January 2012

Group condensed income statement

Group condensed statement of comprehensive income

Group condensed balance sheet

Group condensed cash flow statement

Group condensed statement of changes of equity

Notes to the interim report

1 Accounting policies

Basis of preparation

This interim report for the six months ended 30 November 2011 has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU.

They do not contain all the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 May 2011.

As required by the Disclosure and Transparency Rules of the Financial Services Authority the financial information contained in this report has been prepared using the accounting policies applied for the year ended 31 May 2011 and is unaudited but has been reviewed by Ernst & Young LLP.

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. For this reason, they continue to adopt the going concern basis in preparing the interim report.

The comparative figures for the financial year ended 31 May 2011 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

NCC Group plc ("the Company") is a company incorporated in the UK.

Use of estimates and judgements

The preparation of the consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

Discontinued operations

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale or distribution, or is a subsidiary acquired exclusively with a view to resale.  Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier.  When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is restated as if the operation had been discontinued from the start of the comparative period.

2 Segmental information

The Group is organised into two reportable segments: Group Escrow and Assurance. These two segments are the Group's primary reporting format for segment information.

The table below provides an analysis of the Group's revenue by geographical market where the customer is based.

3 Exceptional items and acquisition related costs

Exceptional items and acquisition costs in the period ended 30 November 2011 were £68,000 principally consisting of professional fees incurred in relation to the acquisition of Axzona Limited in August 2011.

Exceptional items and acquisition costs in the year ended 31 May 2011 were £1,144,000 principally consisting of professional fees incurred in relation to the acquisition of iSEC Partners Inc. in October 2010 and Escrow Associates LLC in March 2011.

4 Taxation

The Group tax charge represents the estimated annual effective rate of 29% (33% in 2010) applied to the profit before tax for the period. The interim period is regarded as an integral part of the annual period and all tax liabilities are disclosed as such.

5 Discontinued operations

In October 2010 the Group withdrew from the General IT Consultancy market in order to focus on growing the Group Escrow and Assurance divisions, organically and by acquisition.  Relevant information security services will be retained and operated from other appropriate parts of the Assurance division.

The division was not classified as held for sale or a discontinued operation at 30 November 2009 and the comparative consolidated income statement has been re-presented to show the discontinued operation separately from continuing operations. 

Expenses in the six months ended 30 November 2010 include a charge of £950,000 in respect of the withdrawal from the advisory business.  No further costs are anticipated.

6 Earnings per share

The calculation of earnings per share is based on the following:

The following additional earnings per share figures are presented as the directors believe they provide a better understanding of the trading position of the Group:-

7 Dividends

8 Capital expenditure

Additions to plant and equipment during the period ended 30 November 2011 amounted to £2,492,000 (£498,000 in 2010) and additions to intangibles amounted to £1,106,000 (£1,429,000 in 2010). 

9 Trade and other receivables

10 Trade and other payables

11 Acquisitions

A. On 4 August 2011 the Group acquired 100% of the share capital of Axzona Limited for a maximum consideration of £1.7m, of which up to a maximum of £0.5m has been withheld subject to the achievement of performance criteria specified in the purchase agreement.  The performance conditions are required to be satisfied by 31 July 2012 and 31 July 2013.  The contingent consideration is expected to be paid in August 2012 and August 2013.

The acquisition had the following effect on the Group's assets and liabilities:

Goodwill has arisen on the acquisition because the purchase price exceeds the fair value of the separately identifiable net assets, liabilities and contingent liabilities acquired. Goodwill represents synergies, business processes and the assembled value of the work force including industry specific knowledge and technical skills. The amount recognised as contingent consideration reflects the amount which is considered probable to be paid and is based on profit forecasts. There are inherent uncertainties in deriving forecasts and the level of contingent consideration will be reassessed at each reporting date to reflect revisions to forecasts or differences between forecast and actual performance. 

B. During the period, £2,625,000 was paid in relation to the part settlement of deferred consideration on the acquisition of SDLC Solutions Limited.

12 Related party transactions

NCC Group's Non-Executive Chairman, Paul Mitchell, is a director of Rickitt Mitchell & Partners Limited and the Group conducted business to the value of £60,500 with Rickitt Mitchell & Partners Limited during the period ending 30 November 2011. Included within the charge is £25,500 in relation to corporate finance advice and the remaining £35,000 relates to the services of the Non-Executive Chairman.

Responsibility statement of the Directors in respect of the interim report

We confirm that to the best of our knowledge:

-      The condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU;

-      The interim management report includes a fair review of the information required by:

(a)  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last annual report that could do so.

Rob Cotton                                          

Chief Executive                          

On behalf of the Board

19 January 2012